Question

Now that operations for outdoor clinics and TEAM events are running smoothly, Suzie thinks of another area for business expansion. She notices that a few clinic participants wear multiuse (MU) watches. Beyond the normal timekeeping features of most watches, MU watches are able to report temperature, altitude, and barometric pressure. MU watches are waterproof, so moisture from kayaking, rain, fishing, or even diving up to 100 feet won’t damage them. Suzie decides to have MU watches available for sale at the start of each clinic. The following transactions relate to purchases and sales of watches during the second half of 2019. All watches are sold for $307 each.

  

Jul. 17 Purchased 57 watches for $8,949 ($157 per watch) on account.
Jul. 31 Sold 47 watches for $14,429 cash.
Aug. 12 Purchased 47 watches for $7,849 ($167 per watch) cash.
Aug. 22 Sold 37 watches for $11,359 on account.
Sep. 19 Paid for watches ordered on July 17.
Sep. 27 Received full payment for watches sold on account on August 22.
Oct. 27 Purchased 87 watches for $15,399 ($177 per watch) cash.
Nov. 20 Sold 97 watches for $29,779 cash.
Dec. 4 Purchased 114 watches for $21,318 ($187 per watch) cash.
Dec. 8 Sold 47 watches for $14,429 on account.

1-a. Calculate sales revenue, cost of goods sold, and ending inventory as of December 31, 2019, assuming Suzie uses FIFO to account for inventory.
  1-b. Prepare the gross profit section of a partial income statement for transactions related to MU watches.
  

2. Late in December, the next generation of multiuse (MU II) watches is released. In addition to all of the features of the MU watch, the MU II watches are equipped with a global positioning system (GPS) and have the ability to download and play songs and videos off the internet. The demand for the original MU watches is greatly reduced. As of December 31, the estimated net realizable value of MU watches is only $107 per watch.

a. Record any necessary adjustment on December 31, 2019, related to this information.

b. For what amount would MU inventory be reported in the December 31, 2019, balance sheet?

c. Prepare an updated gross profit section of a partial income statement accounting for this additional information.

Answer 1

Calculation of sales revenue		All amount in dollar
Date	Purchase			Sale			Inventory
	Quantity	Rate per watch	Amount	Quantity	Rate per watch	Amount	Quantity	Rate per watch	Amount
Jul.17	57	157	8949				57	157	8949
Jul.31				47	307	14429	10	157	1570
Aug. 12	47	167	7849				10	157	1570
							47	167	7849
Aug, 22				10	307	3070	20	167	3340
				27	307	8289
			Total	37	307	11359
Oct, 27	87	177	15399				20	167	3340
							87	177	15399
Nov, 20				20	307	6140	10	177	1770
				77	307	23639
			Total	97	307	29779
Dec, 4	114	187	21318				10	177	1770
							114	187	21318
Dec,8				47	307	14429	77	187	14399
		Total	53515			69996
1A. Sales revenue = 14429+11359+29779+14429 = 69996
Cost of goods sold = purchase- inventory = 53515 - 14399 = 39116
Ending inventory 14399
1B. Gross profit =Sales revenue- cost of goods sold = 69996-39116 = 30880
1A. As resale value decrese to 107 the closing inventory will be 77*107 = 8239 and diffential of 14399 - 8239 = 6160 will be adjusted in the inventory and charged to cost of goods sold.
Inventory 8239
Gross profit = 30880- 6160 = 24720